Among the corporate success stories in South Korea over the last 50 years, Samsung Electronics dominates. When Koreans travel the world, many express pride at the sight of billboards advertising the company's flat-screen televisions, mobile phones and household appliances.
The president of South Korea, Roh Moo-hyun, has even said that Samsung, not he, is the real representative of South Korea abroad, according to members of his political party.
But at home, the Samsung group of companies, controlled by the family of Lee Kun-hee, the chairman of Samsung Electronics, faces growing criticism of its ownership and control arrangements, as well as its handling of a looming generational change. Legislators, regulators and advocates of shareholder rights are questioning the financial structure that links Samsung's 61 affiliates and are trying to gain some influence over how the company is controlled and eventually will be passed on to Lee's son, Lee Jay-yong.
This attention on Samsung comes as regulators and legislators here, in an effort to protect shareholders, try to correct the imbalance between voting rights and the exercise of power by the founding families in the country's conglomerates, or chaebol.
Critics say Samsung's complex system of ownership, which ties together an array of financial, manufacturing and other affiliates, breaches either the letter or the spirit of South Korean corporate law.
Kim Sun-woong, executive director of the Center for Good Corporate Governance, said the ownership and control structures at Samsung were "not for the shareholders' profit but rather to retain Lee Kun-hee's corporate control."
The debate is provoking tensions between Samsung and elements of the governing party in the National Assembly. Legislators from Roh's Uri Party are backing two proposed laws that would chip away at the structure that the Lee family uses to manage its empire.
The Uri Party legislators are backed by the Fair Trade Commission in South Korea, which recently released a report showing an imbalance between direct ownership by founding families in the chaebol and their level of voting rights. Within South Korea's 55 top chaebol and their 968 affiliates, founding families on average own just 5 percent of the shares but have 51.2 percent of the voting rights, according to the commission.
The Lee family, with an average of 4.4 percent ownership of Samsung companies, has 31 percent of the voting rights. In Europe, the commission found, the ratio of ownership to voting rights was close to 1-to-1. Lee Seuk-joon, director of the commission's business group division, said the government wanted to "reduce the gap between ownership rights and controlling rights by chaebol chiefs" to protect the rights of minor shareholders and improve corporate checks and balances.
This battle is being fought on several fronts. But the major contest is over two pieces of legislation that would limit the voting rights that financial affiliates of the chaebol could exercise in nonfinancial affiliates. Both are of particular concern to Samsung, which has nine financial affiliates, including Samsung Life Insurance and Samsung Card.
The group relies heavily on these financial affiliates as links in a system of circular holdings that bind it together through Samsung Everland, a holding company that operates South Korea's version of Disneyland and is majority-owned by the Lee family.
Last December, the National Assembly amended the fair-trade law to reduce the voting rights that financial affiliates can have in other parts of the same business group.
The change, to be introduced in three steps by 2008, would cut the Lee family's voting rights in Samsung Electronics by as little as 1 percent, according to the Center for Good Corporate Governance.
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